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January 20, 2015, 9:58 P.M. ET

DAVOS: Adecco Still Can Do a Job for Investors

By Jonathan Buck

Adecco was sold off after Switzerland’s central bank dropped a bombshell in foreign-exchange markets last week, but it could retrace its losses as investors reassess its prospects.
Its shares (ADEN.Switzerland) lost 8% after the Swiss franc shot up in value following a move by the Swiss National Bank to abandon its policy of defending the euro. At Tuesday’s close of 61.70 Swiss francs ($70.42), they are down more than 10% in 2015.
Analysts were forced to reappraise Adecco after the currency upheaval. For example, Credit Suisse reduced its price target to 66 Swiss francs, citing the currency move, but it maintained its Outperform rating.
The company is based in Glattbrugg, Switzerland, and listed on the SIX Swiss Exchange, but it reports earnings in euros. Those earnings will be reduced when translated into Swiss francs at a sharply higher rate.
Analysts’ consensus price target has fallen to 61.37 Swiss francs, although some estimates are as high as 80 Swiss francs, which suggests upside approaching 30%.
Clearly, Adecco’s fundamentals still are appealing. It is a well-run business focused on delivering for shareholders and it is well placed to benefit from an upturn in economic fortunes globally.
Chief Executive Patrick de Maesenaire says he is more upbeat than some bosses about the revival in the European economy.
In an interview on the sidelines of the World Economic Forum’s annual meeting in Davos, de Maesenaire says he is hoping that European Central Bank President Mario Draghi on Thursday will announce a stimulus to ward off the risk of deflation.
Even if Europe posts a 1% rise in gross domestic product growth in 2015, de Maesenaire says Adecco would be OK because companies wouldn’t hire full-time workers in the region’s rigid labor markets, so firms that can provide temporary labor would benefit.
“With 1% growth, we can grow strong single digits – 6-7%,” he says.
After Europe’s rebound appeared to falter in the third quarter of 2014, de Maesenaire sees it getting back on track in early 2015, aided by the sharp drop in oil prices.
“For export-oriented companies, this must have an effect … not immediately, but these order books must start to be filled. You will see the effect from the second quarter onward,” he says.
Adecco is forecast to earn 4.26 Swiss francs a share in 2015, down from a projected 4.47 Swiss francs in 2014.
However, in euro terms, the company is expected to report earnings before interest and tax of 1.10 billion euros ($1.27 billion) on revenues of 21.43 billion euros in 2015, up from an estimated Ebit of 941 million euros on revenues of 20.07 billion euros in 2014.
Its shares trade at 14.5 times projected 2015 earnings, a multiple that appears undemanding.
They also offer a dividend yield of 3.2%. That’s pretty lucrative compared with the negative yield on Swiss 10-year sovereign bonds.
Adecco in November also announced a 250-million-euro share buyback. A buyback of the same size had completed only two months earlier. It’s a use of capital that shareholders applaud.
The company’s progress has been checked by event beyond its control, but it can still do a job for investors.

About Davos Report

The World Economic Forum’s annual meeting in Davos, Switzerland, attracts 1,500 corporate leaders. On the sidelines of the meeting, we talk to executives to learn about business trends and strategic developments.

The blog is written by Barron’s Europe Editor Jonathan Buck, who previously worked for The Wall Street Journal and its international editions. He has attended the World Economic Forum’s annual meeting each year since 2011.